The Coalition for Prediction Markets said the definition of swaps is “certainly broad enough” to include sports in its response to the Commodity Futures Trading Commission.
The CFTC’s public commentary period on its advanced notice of proposed rulemaking concerning prediction markets ends Thursday afternoon with more than 1,400 comments posted over the 45-day period.
The coalition and its five members – Coinbase, Crypto.com, Kalshi, Robinhood and Underdog – also said any new definition of gaming should cover casino-style games traditionally regulated by states in its comments submitted Thursday.
There is nothing that suggests a significant change is coming from the CFTC concerning event contracts and predictions. The regulator continues to sue states over its right to federally regulate prediction markets, the most recent suit filed Tuesday against Wisconsin.
CPM: Sports fits within definition
The coalition says the definition of swaps within the Commodity Exchange Act makes sense for sports and uses the most recent Super Bowl as an example.
The swaps definition is certainly broad enough to capture sports-related event contracts,” reads the letter. These contracts “provid[e] for . . . payment” that “depend[s] on the occurrence” of a “contingency.” And as the Third Circuit recently held, the “outcome of a sports event certainly can be associated with a potential financial, economic, or commercial consequence,” affecting stakeholders such as “sponsors, advertisers, television networks, franchises, and local and national communities.”
For example, the Seattle Seahawks’ appearance in the most recent Super Bowl led to a significant increase in business for Seattle retailers.
That the definition specifies “any” type of contract means it “undoubtedly” includes the contracts that prediction markets offer, the CPM said.
Banned markets too strict?
The coalition also asks the CFTC to apply its “principles-based regulatory framework” to rule 40.11, which covers what cannot be offered as a contract.
The rule states operators cannot offer trading on anything “that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law, as well as anything “similar” to one of those banned topics.
An outright ban goes against the requirements, the coalition said:
The rule has been misunderstood to categorically and in one broad stroke prohibit five types of event contract. This interpretation is overly prescriptive, contrary to a principles-based approach, and goes beyond the authorization of CEA § 5c(c)(5)(C), which requires a specific public interest determination before banning an event contract from being listed on a DCM. An amended rule should make this statutory requirement clear.
No casino games on prediction markets
Casino games have no place on prediction markets based on the rules and should be formally included in the definition of gaming, the coalition said.
Prediction markets are organized, regulated DCMs and SEFs that facilitate trading between multiple participants on an open, competitive, and impartial marketplace. In contrast, casino games are entertainment products, generally played against the casino itself. Prediction markets facilitate price discovery, providing useful information about the probability of future events.
There is no price discovery function to casino-style games. Event contracts on DCMs are tied to real-world events associated with a potential financial, economic, or commercial consequence. Wagers on casino games have no economic significance apart from the wager itself.
The Coalition recognizes these fundamental formal and substantive differences between DCMs and gambling operations and does not support listing contracts on traditional casino games (such as slot machines, roulette, or “table games”) on prediction market platforms.
The coalition also added the operators themselves should remain as self-regulator organizations: “Reliance on the SRO function of [designated contract markets] to support market integrity recognizes that they have the incentives and expertise to get it right.”
